Key points of investment
Annual Report for the year 23: Revenue slightly exceeded expectations, and adjusted net profit was in line with expectations for 23 years: revenue of 2.15 billion yuan (+31%, same ratio in parentheses, same below), adjusted net profit of 240 million (+53%), and net profit of 230 million (+108%). The proposed dividend of HK$110 million represents approximately 47% of net profit attributable to mother.
The previous earnings forecast revenue was no less than 2.12 billion yuan, the adjusted net profit was not less than 240 million, and the net profit was no less than 220 million. Actual revenue and profit slightly exceeded expectations, and the adjusted net profit was in line with expectations.
The three US collaborated, and Shengmei grew steadily. The medical, aesthetic and Asian health businesses led a 23-year revenue split: 55% of Shengmei +40% of medical and aesthetic +5% of Asian health services.
1) Shengmei: The volume and price of the cornerstone business increased. Revenue of $1.19 billion (+26%) for 23 years, gross profit margin of 39.6% (+2.8pcts), number of members exceeded 90,000 (+19%), average annual consumption of 11,000 (+905 yuan), and members visited the store 10 times a year (+1 times). Among them, Shengmei is the entry point for the Sanmei business, and the penetration rate of Shengmei → Medical Aesthetics was further increased in '23.
2) Medicine and beauty: The penetration rate of beauty → medical beauty has been further increased, and the number of members and customer traffic has increased beautifully. Revenue of 850 million (+37%) in 23 years, gross profit margin of 53.8% (-1.5pcts), 23 years of active members reached 24,000 (+31%), average annual consumption of 35,000 (+1,493 yuan), and average annual membership consumption 2.9 times (+0.2 times), of which 23H2 revenue decelerated month-on-month. We expect mainly new customer development, increase in the share of basic projects, etc., and customer unit prices may be under pressure.
3) Sub-health care services: Health care and special care services for women are driving high growth. Revenue of 100 million in 23 years (+48%), gross profit margin of 46.7% (+8.2 pcts), active members reached nearly 4,200 (+37%) in 23 years, average annual consumption amount of 16,800 members (+869 yuan), and the average annual consumption frequency was 4 times (+0.5 times). The market's attention to Asian health issues further increased in '23, and the company also seized the opportunity to accelerate business expansion; in response to gaps in the gynecological anti-aging market, it first launched a special care center for women. The revenue of the Women's Special Care Center also increased by more than 200% in '23.
It plans to acquire the second-largest market share of Shengmei in China. Shengmei's two giants announced that they intend to acquire 70% of the shares of the traditional beauty service provider Narier, which has the second-largest domestic market share (in terms of revenue for 21 years), for 350 million yuan. In '23, Neriel's revenue was 50,000,000 and net profit was 33.4 million. Acquisitions correspond to 1 times PS and 15 times PE.
We believe this acquisition is expected to: 1) Significantly increase market share and directly boost performance. 2) Enhance the competitive advantage of the Greater Bay Area region. The advantageous regions of beautiful pastoral gardens mainly include 23 directly managed cities such as Shanghai and Beijing. Meanwhile, the Nerill brand has been deeply involved in the Greater Bay Area for more than ten years. The acquisition involves 80 Narrell beauty and health stores, 6 medical and aesthetic clinics, and 2 traditional Chinese medicine clinics, mainly distributed in the Shenzhen region. 3) Give full play to the competitive advantage of the health technology business and enhance the ability to “acquire customers” and “lock in customers”. Compared with beautiful gardens and traditional beauty services from Bellisse, Neriel has a differentiated advantage in smart health services. The products and services of both parties complement each other, which is expected to promote member integration.
Outlook: The advanced nature of the Sanmei model is evident, the accumulation of high-quality member assets+seizing opportunities for national expansion 1) Stable core competitiveness, and synergy of beauty, medicine, and anti-aging. In '23, the company's direct-run stores received 1.26 million visitors (+33%), 94 thousand active members (+20%), and active members spent an average of 21,000 (+2109 yuan) per year.
Among them, the penetration rate of Shengmei → medical aesthetic/sub-health services reached 25% (+1.3 pcts). The increase in penetration rate was due to the continuous enrichment of the product matrix of Sanmei collaboration and the stable output of high-quality services.
2) When expanding across the country, target high-quality targets in the industry. As of '23, the company had 201/199 direct-operated/franchised stores nationwide, of which 50 were added in '23, including 19 newly opened or acquired stores and 31 franchised stores. The company joined forces with Nariel, a leading traditional beauty service provider in China. In the future, as a leading direct chain chain in the beauty industry, the company will continue to seize the opportunity to carry out mergers and acquisitions and consolidate its leading position.
3) Refinement and digital operation system empowerment to optimize costs. In 23 years, the company has been effective in the field of private domain expansion. It has strengthened interaction with customers through WeChat applets, corporate maintenance, etc.; and optimized the digital central platform system to improve the efficiency of accepting new customers and reduce customer acquisition costs.
Profit prediction and valuation: As a leader in traditional lifestyle and beauty services, the company is expected to drive development in the future by increasing penetration rate through Shengmeituo store+medical aesthetic/medical services. We expect net profit from 24-26 to mother of 2.7/3.4/3.9 billion, which is only 12/10/8 times PE, maintaining a “buy” rating.
Risk warning: risk of demand recovery falling short of expectations; risk of medical malpractice; risk of opening new stores falling short of expectations; risk of increased market competition